Definition of Home Loan
Home loan – A loan in which the borrower puts up the title deed to real estate as security (collateral) for a loan. If the borrower doesn’t pay back the loan on time, the lender can foreclose on the real estate, have it sold in order to pay off the home loan.
This simply means that the failure to make payments on your home loan could result in you losing your home. One should always ensure that they can comfortably afford the repayments on a loan by consulting with us.
Basic Components of a Home Loan
- Loan Amount – this is the principal amount that you want to borrow. Banks in Singapore can usually give a loan of up to 80% of the property value.
- Interest Rates – this is how much interest that is paid annually to the lender of the loan. Interest rates can be fixed, floating, or a combination of both.
- Loan Tenure – this is the duration of time that you take to completely repay the loan. Loan terms usually range from 5 years to 40 years.
- Lock in Period – this is a duration in which any changes to your loan terms like refinancing or repricing will incur penalties.
- Repayment – The home loan is usually repaid via monthly installments. This payment comprises of two parts. One is the repayment of the principal amount while the other is for the repayment of the interest.
Types of Home Loans
A mortgage is usually taken up to finance the purchase of a new property or to refinance an existing property.
Initially, most banks offer discount rates for a certain period of time, also known as the lock-in period. The discount rate stops once the loan reaches the end of the lock-in period.
The borrower can then refinance to get the lower rates again. A high percentage of home owners do not refinance as they get very comfortable and fail to take the effort every few years. This will cost them thousands of dollars in the long run. We have very specialised refinance calculators that can help you calculate your cost savings almost immediately. Do let us know if you require such calculations.
In some cases, refinancing allows the borrower to increase the loan amount and cash out the excess cash from their property for investment, business, or paying off their car loans, which usually come with very high interest rates. Compared to personal loans, mortgages are the cheapest financing option available for most home buyers.